Policy

The Problem With Sticky Jobs at Startups

Looking for a job that pays the big bucks? Aim for a big, established company, rather than a new, small one.

That’s one seemingly obvious takeaway from a Kauffman Foundation report released Wednesday. “Job Creation, Worker Churning, and Wages at Young Businesses” found that just before the 2001 recession, workers at new firms earned about 85 percent as much as did workers at mature firms. In 2011, the ratio dropped to 70 percent.

Beyond the dramatic drop in startup activity over the past three decades—the subject of a previous Kauffman report (PDF) and an earlier Businessweek.com commentary—perhaps most troubling for policymakers keen to spur recovery is declining worker churn—the pace at which workers quit and employers replace them.

The new report shows that churning dropped at businesses of all sizes from 1998 to 2010. The “stickier” labor market impairs economic growth because workers aren’t changing jobs, which generally accounts for substantial earnings growth and skills acquisition, says Dane Stangler, Kauffman’s director of research and policy.

Newly formed businesses matter in this equation because historically they have had significantly higher churn rates than their older counterparts, the report notes. “Young firms have been such a dynamic and important source of job creation,” says Stangler. “Not only job creation itself, but a very important part of that cycle of employment, where someone is job-hopping, improving their prospects, improving their own human capital, and eventually getting to a higher paying, more stable job. If multiple parts of that cycle are breaking down, that’s not great news for the job market as a whole.”

One way to make the labor market less sticky, says Stangler: Increase professional license portability. “Over the past 30 or 40 years, we know the percentage of Americans subject to professional and occupational licensing regimes has risen dramatically,” he says, acknowledging that he’s entering speculative territory. “That hampers labor mobility.”